Auditor Independence and Non-Audit Services:
A Literature Review

Vivien Beattie
University of Stirling and Stella Fearnley
University of Portsmouth

TABLE OF CONTENTS
Page
List of tables and list of figures
About the authors

v vi List of abbreviations

vii

Executive summary

ix

Part 1
Auditor independence
1
Introduction

1

1.1

1

1.2

The ‘problem’ of non-audit services (NAS)

1

1.3

The current UK regulatory and professional environment

2

1.4

Motivation for this study

3

1.5
2

The role of audit in regulating capital markets

Structure of report

3

Auditor independence

4

2.1

Introduction

4

2.2

Definitions of auditor independence

4

2.3

Economic models of auditor independence not including NAS

5

2.4

Models of auditor pricing and independence in the presence of NAS

5

2.5
2.6

Economic power models of auditor independence
Moral psychology, ethical reasoning and independence

8
8

2.7

Broader based studies into auditor decision making

9

2.8

Summary and comments

11

Part 2
Current regulatory frameworks
3
Auditor independence and NAS: analysis of current regulatory frameworks 3.1 Introduction

13
13

3.2

Regulation of auditor independence

13

3.3

Independence in professional and legal regulatory frameworks

13

3.4
3.5

Independence and NAS
Overall economic dependence

19
22

3.6

Small companies

22

3.7

Summary and comments

23

Part 3
Empirical studies of NAS
4
Methods

25

4.1

25

4.2
5

Literature search procedures adopted
Review procedures adopted and classification of empirical studies

26

Descriptive studies of the nature and magnitude of NAS fees
5.1 Introduction

28
28

5.2

US studies

28

5.3
5.4

UK studies
Summary and comments

28